corporate ownership structures in india · 2018. 8. 20. · ownership trends in corporate india...

WORKING PAPER NO: 419

Ownership Trends in Corporate India 2001 – 2011 Evidence and Implications

N. Balasubramanian Visiting Professor

Centre for Corporate Governance and Citizenship, Indian Institute of Management Bangalore,

Bannerghatta Road, Bangalore-560076 [email protected]

R V Anand Research Associate,

Centre for Corporate Governance and Citizenship, Indian Institute of Management Bangalore,

Bannerghatta Road, Bangalore-560076 [email protected]

Year of Publication-July 2013

The first decade of the new millennium saw dramatic changes in the ownership patterns in major listed corporations in India. Two developments were striking: promoters especially in the domestic private sector bolstered up their holdings to assure continued entrenchment; and institutional investors significantly increased their holdings especially in the private sector management controlled companies segment. In both cases, these increases were achieved at the cost of retail non-institutional shareholders whose holdings correspondingly recorded a steep fall. This paper documents this evidence, seeks to identify their underlying rationale and assess their implications for corporate equity investment and governance in the country.

mailto:[email protected]:[email protected]

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Contents

I ....................................................................................................................................................... 4

Corporations and their Evolution in India .................................................................... 4

Ownership Trends around the World ............................................................................. 6

Ownership Patterns in India ............................................................................................... 6 Exhibit 1: The Corporate Sector in India: 1957 - 2011 ................................................................. 8

Concentrated vs. Dispersed Ownership .......................................................................... 8

Voting Rights – Democratic vs. Plutocratic ................................................................... 8

Inter-Corporate Ownership – Pyramids and Groups................................................ 9

Board Interlocks .................................................................................................................... 10

II ................................................................................................................................................... 11

Ownership of Indian Corporations ................................................................................ 11 a) NSE in the Indian Context ................................................................................................. 11

b) The S&P CNX-NIFTY-50 ..................................................................................................... 12

c) The NIFTY JUNIOR ............................................................................................................ 12

d) The CNX-100 .................................................................................................................... 12

e) Time Frame ...................................................................................................................... 12

f) Data review and validation ............................................................................................... 14

Classification of Companies .............................................................................................. 15 Domestic Private Sector Companies ......................................................................................... 15

Foreign Private Sector Companies ............................................................................................ 15

Government Owned Companies .............................................................................................. 15

Management Controlled Companies (Dispersed shareholdings) ............................................... 15

Exhibit 2: Types of Companies.................................................................................................. 16

Classification of Shareholders ......................................................................................... 16 Exhibit 3: Classification of Share Ownership ............................................................................. 17

Exhibit 4: Schematic of Analytics Structure............................................................................... 19

III .................................................................................................................................................. 20

Analysis and Observations ................................................................................................ 20 Set A: Index Companies at Each Year-end: ............................................................................... 20

Exhibit 5A: Count of Companies in the CNX-Set A ..................................................................... 21

Exhibit 5B: Count of Companies in the NIFTY-Set A .................................................................. 21

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Exhibit 5C: Count of Companies in the JUNIOR NIFTY-Set A ...................................................... 22

Exhibit 6A: Frequency Distribution of Promoter/Government Companies in CNX-100 .............. 24

Exhibit 6B: Frequency Distribution of Promoter/Government Companies in NIFTY................... 25

Exhibit 6C: Frequency Distribution of Promoter/Government Companies in NIFTY JUNIOR ...... 25

Set B: Index Companies in 2011 over Ten Preceding Years ....................................................... 26

Exhibit 7A: Count of Companies in the CNX-Set B ..................................................................... 27

Exhibit 7B: Count of Companies in the NIFTY-Set B .................................................................. 27

Exhibit 7C: Count of Companies in the JUNIOR NIFTY-Set B ...................................................... 28

Exhibit 8A: Frequency Distribution of Promoter/Government Companies in CNX-100 .............. 30

Exhibit 8B: Frequency Distribution of Promoter/Government Companies in NIFTY................... 30

Exhibit 8C: Frequency Distribution of Promoter/Government Companies in NIFTY JUNIOR ...... 31

In Summary ............................................................................................................................. 31

Implications for Governance ............................................................................................ 32 Exhibit 9: Summary Statistics- Index Composition and Market Capitalisation ........................... 35

Exhibit 10: Summary Statistics- Ownership Data ...................................................................... 36

References ................................................................................................................................ 37

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Ownership Trends in Corporate India 2001 - 2011 Evidence and Implications

Abstract

The corporation as a preferred business format for large (and/or) risky ventures has come to

stay as a global phenomenon. Societies around the world (represented by their

governments) have facilitated and encouraged their growth as instruments of their own

wellbeing and competitive advantage among the comity of nations. As vehicles of private

enterprise and personal enrichment, corporations can be at cross purposes with societal

expectations of how they are to be run, especially in terms of their positive contributions

and negative costs of operation. Ownership and control of corporations under the watchful

stewardship and surveillance of their boards have a significant influence in shaping

corporate behavior and the equitable management of relationships between and among

themselves, the society and communities they serve, and the governments of the countries

they operate in.

This paper tracks the movements in corporate ownership in India among its top companies

in the first decade of the new millennium and moving forward in to the second. It offers a

fascinating kaleidoscope of the changing political and regulatory environment driving

ownership patterns in sympathy. The paper is organized as follows: section I provides a brief

overview of the development of the corporate format of business organizations globally and

especially in India; section II describes the sample and its categorization for analysis,

methodology and other background information; and section III sets out the findings,

interpretation and conclusions. An Annexure of a comprehensive set of statistical exhibits

completes the presentation.

Keywords: corporate ownership, controlling shareholders, promoters, concentrated

ownership, institutional investors, minority shareholders, corporations, corporate

governance, India

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I

Corporations and their Evolution in India

Looking back at the evolutionary history of the corporation as known today, one could

discern at least three major defining developments. First was the artificial creation of the

corporate entity by a legal sleight, followed by the introduction of limited liability, the

acceptance of the corporations’ right to invest in and hold stock of another corporation, and

finally, the shift from democratic to plutocratic voting rights, moving away from one vote

per shareholder to one vote per share and thence to even more skewed differential voting

rights.

The second was the emergence of the publicly traded corporation representing a paradigm

shift in the way business could be scaled up, where owners of a slice of the corporation

(represented by the proportion of shares held) neither had claims to the property (net of

liabilities) of their company in kind nor the obligation to be permanently wedded to their

shareholdings; they could exit by selling their shares or otherwise disposing them off. As

Berle and Means (1932, pp. vii-viii) pointed out some eighty years ago, this development

transformed significant proportions of the nation’s industrial wealth from essentially

individual ownership to corporate ownership, in the process changing the lives of property

owners and workers, and in fact even the very concepts of property ownership, ushering in

virtually a new format of economic organization.

The third defining element in modern corporate governance was the development of the

corporate board itself and its role, responsibility and accountability. Undoubtedly, the board

is ‘elected’ by the shareholders (usually by the dominant shareholders or the executive

management depending upon the country’s ownership patterns) but once so elected the

board is virtually its own arbiter in all matters relating to the company. With the demise1 of

References to Companies Act 2013 are in fact to the Companies Bill 2012 which has been approved by the Lok Sabha in December 2012 and is awaiting similar approval by the Rajya Sabha before being signed into law by the President, likely in 2013 1 Especially in the context of large scale high-risk enterprises; the small and medium scale entrepreneurs continue to thrive elsewhere and constitute a very substantial part of the Indian economy and business

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the active, small time entrepreneurial investor-manager and the ascent of the generally

passive absentee2 shareholders in the corporate format of business, executive management

took over that function subject to the supervision and oversight of the board. Influential

legal scholars like Adolf Berle (1931), Merrick Dodd (1932), Lynn Stout (2002, 2012), Lucian

Bebchuk (2005, 2006), Stephen Bainbridge (2002, 2005) and Leo Strine, Jr. (2006), among

others, have been debating the pros and cons of greater shareholder involvement in

corporate decision making but as of now the absentee shareholders in many jurisdictions

have to be satisfied largely with their (theoretical) right of having a say in the election of the

directors to the board and thereafter hoping their interests would be fairly protected. Indian

shareholders however are comparatively better off than most of their western compatriots

in that they have superior rights in law especially with the legislative and regulatory reforms

in 20133, albeit often neutralized by dominant shareholders’ voting power and the general

indifference of institutional shareholders.

Shareholder primacy is impacted variously by the ownership structures of the corporation.

Dominant ownership (which includes but not necessarily requires majority holdings) which

is widely prevalent around the world including India, with the exception of the United States

and United Kingdom, can be a double-edged sword: owners with long term interests in the

company can offer stability and proprietary oversight to ensure efficiencies but can also

potentially inflict costs of extraction of private benefits of control to the exclusion of other

shareholders. The managerial model of the corporation prevalent in the US and UK, with

dispersed ownership, while avoiding the demerits of the dominant ownership can and often

does exhibit agency costs arising from fundamental non-congruence between shareholder

and manager interests. These are generally manifested in the form of unconscionable

executive compensation, bonuses and severance terms, besides use of corporate funds and

resources for personal aggrandisement, self-seeking philanthropy, overly risky business

practices, leveraged buyouts and manipulative gains on stock options through creative

earnings management, self-dealings, and so on. A desirable model that would incorporate

2 A term we use to denote all shareholders not associated with operational control of the corporation, in preference to the general usage of ‘minority ‘ shareholders since often this category happens to be the majority in most corporations 3 A review of the improvements and their impact on good governance is available in Balasubramanian (2013)

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the positives and eschew the negatives of either form of ownership is a theoretical

possibility but in reality, barring miniscule exceptions, it is hard to come by.

Within the confines of the modern day corporation, both accountability and responsibility

are heavily impacted by ownership. Ownership structure can also mediate firm strategy and

behavior (Wright, et al, 1996) and can influence boardroom dynamics and stakeholder

management (Goodstein and Boecker, 1991), executive compensation (David, Kochhar and

Levitas, 1998; Balasubramanian, et al, 2013)), and R&D investment (Baysinger, Kosnik and

Turk, 1991). An understanding of ownership patterns and trends can thus lead us to more

nuanced understanding of organizational behaviour and its predictability.

Ownership Trends around the World

Academic research on corporate ownership has often been dominated by studies focused

on the United States and the United Kingdom both with predominantly dispersed ownership

structures. Studies by La Porta, et al (1999) of other economies and more recently by

Aguilera et al (2011) of firms in emerging markets have found concentrated ownership as a

general pattern in most other world economies. The La Porta study which included firms

from 27 developed countries concluded that only 30% of the firms showed dispersed

ownership. Although Japan in this study returned dispersed ownership because of direct

ownership not being higher than 20% ( the study cut-off criterion), in effect the country

qualified as concentrated ownership geography because of predominant inter-corporate

holdings. Aguilera et al (2011) also found significant ownership concentration, either in the

form of holdings by corporate bodies, individuals or the state in their study of corporations

in South America.

Ownership Patterns in India

Corporate ownership in India is predominantly concentrated in the hands of domestic

individuals and promoter groups, multinational parents, or the state. Much of the family

and other domestic holdings could be traced back to the days of the British Managing

Agencies (Balasubramanian 2010, pp. 359-365), arguably unique to India that enabled

essentially British merchants and some Indian businessmen to spawn and nurture different

enterprises which eventually grew into giant corporations in their own right. Many of these

agencies were acquired by Indian groups when their British owners chose to depart from

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India on the country attaining independence in 1947. The Indian state was the other major

dominant shareholder in a number of large corporations when as part of national policy,

state owned enterprises were set up to reach commanding heights in the Indian economy;

many of these are now publicly traded corporations as a result of the government’s

privatisation initiatives. The third group responsible for concentrated ownership in the

country is the foreign multinational sector: many international corporations have identified

India along with China as the future economic power engines of the world and set up shop

in the country. With several sectors of the economy gradually opening up for foreign

participation, this sector may grow substantially in the near future.

While the focus of this paper is the larger publicly traded companies, it would be helpful

also to recognise the phenomenal growth in the overall corporate sector in the last half a

century. Exhibit-1 sets out this growth of the corporate sector in India from the time the last

major legislation on company law was enacted in 1956. The listed segment out of this huge

population is of course miniscule in number but significant in value: 1657 companies were

listed on the National Stock Exchange as of September 2012, with a market capitalization of

Rs. 64, 31,658 crores (US$ 1.18 trillion); the much older (in fact the first Asian) Bombay

Stock Exchange has a listed company population of over 5000 companies in 2012 with a

market capitalization of Rs. 58, 30,000 crores (US$ 1.06 trillion). Given the fact that some 50

to 55 thousand unlisted public companies would be virtually wholly managed by the

promoters, the other absentee shareholders in those companies (although admittedly fewer

in number because of the lack of public participation) would pretty much be in the same

situation as the absentee shareholders in their listed counterparts, with the added

vulnerability of no regulatory supervision or rigorous disclosure requirements other than

what the company legislation imposes upon them.4 This continues to remain a vast

unexplored segment in terms of academic research.

4The Companies Act 2013 seeks to bring about a change in this position with several good governance practices being made applicable to unlisted public companies as well; the contours of the scope and extent of these mandates are as yet unclear and would depend upon subordinate legislation in due course

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Exhibit 1: The Corporate Sector in India: 1957 - 2011

31 March

Limited by Shares Unlimited

Liability

Companies

Companies

Limited by

Guarantee

Foreign

Companies Government

Companies

Non-Government

Companies Total Companies

1957 74 29283 29357 - 1364 551

1961 142 26007 26149 - 1169 569

1971 314 30008 30322 - 1270 543

1981 851 61863 62714 176 1478 300

1991 1167 223285 224452 317 2117 489

2001 1266 567834 569100 461 2918 1141

2011* 1316 713239 714555 437 3600 3127

*Public 988 58658 59646

*Private 328 654581 654909

Listed Companies

NSE 1657

BSE 5000+

Source: Table 2.4 and XI (pp. 18, 87) 55th Annual Report on the Working & Administration of the Companies Act, 1956: Year ended 31 March 2011; Ministry

of Corporate Affairs, Government of India; Listed companies from web sites of respective stock exchanges

Concentrated vs. Dispersed Ownership The classical agency problem of separation of ownership and control (Fama, 1980) is

commonly associated with dispersed ownership. In India where the norm is concentrated

ownership in the hands of promoters, , horizontal agency or agency type-II problems (Morck

and Yeung, 2003, Roe, 2004) are more prevalent. Issues such as board composition, board

monitoring, director independence, risk management, communication, disclosure practices,

and so on must all be seen in this context.

Voting Rights – Democratic vs. Plutocratic Voting rights are an index of the efficacy of ownership rights. These can be plutocratic with

one vote per share or democratic with equal voting rights irrespective of the number of

shares held and in some cases a combination of the two, which Alexander Hamilton (1790)

referred to as the prudent mean (or regressive voting as sometimes called) . A further

distortion is introduced with leveraged rights with some shares being more equal than the

others and commanding a higher voting impact than warranted by the single share.

In the early 19th century when business law followed common law, voting rights were based

on the principle of suffrage rather than on the principle of property. This largely stemmed

from the view that the corporation was a social entity and from a fear that plutocratic voting

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rights would tilt the balance of power unnaturally in the hands of the few and mighty. As

capitalism became the dominant force and ownership became dispersed, plutocratic voting

rights were entrenched in the US towards the latter half of the 19th century (Dunlavy, 2006).

Corporations in Germany, Britain and France also began to adopt the one vote one share

principle. In India, the one vote per share principle mimicked the law in Britain, with

provision for differential rights with state approval. However to this day, it is not uncommon

to have a simple show of hands at a shareholders’ meeting while voting on a proposal

making it a democratic process at least in the ceremonial sense, since a poll (with plutocracy

in full operation) must be granted if required by any shareholders. In terms of the

effectiveness of the principles, neither system’s superiority (democratic or plutocratic) has

been established. Some countries such as the United States have both systems with large

names such as Berkshire Hathaway and Google having dual class shares. In a study

commissioned by the Association of British Insurers covering the FTSE 300 (ABI, 2005),

Belgium and Denmark found evidence mostly supporting plutocratic voting, with 88% of the

companies in Britain applying the one share-one vote principle. Countries such as

Netherlands, Sweden and France had in excess of 60% of their companies listed on the FTSE

with multiple voting rights, clearly an oligarchic rather than a democratic principle. In India,

company legislation had prohibited issue of shares with differential voting rights right until

the end of the twentieth century and then amended the law to permit them; though this

practice is not very common and the number of companies with such provisions is relatively

small. The Companies Act 2013 does away with this concept altogether again.

Inter-Corporate Ownership – Pyramids and Groups

The acceptance of the principle that corporations may own shares in other corporate

entities was to have a monumental influence on the development and growth of what we

know now as corporate groups and conglomerates. This was to be the harbinger of giant

corporate entities in terms of their ultimate control over assets and resources of the total

group without necessarily having to invest fully to acquire those economic interests. With a

series of layers of holding and subsidiary or affiliate companies often with just majority

control at each level, corporate pyramids were created with individuals or families or

managerial clusters at the top of the cone being catapulted into positions wielding

enormous control rights with comparatively little cash flow rights.

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The subsidiaries and affiliates were useful (especially in case of multinational corporations)

as instruments for de-risking (since each incorporated entity was deemed to be standalone

legal entities with their liabilities often contained within themselves and not passing

through to the parent entities, barring a few exceptions where this corporate veil could be

done away with), tax saving and currency management (creatively managing profits,

transferring to stronger currency and lower taxes geographies and so on), and also for

genuine business strategy reasons, or to comply with local government requirements.

Besides, there were also tax and other advantages in independent legal entities in case of

existing businesses or geographies, or getting into joint ventures and other such structural

devices.

In the context of the present study the relevance and importance of corporate groups are

immense. They offer a fertile ground for potential tunneling by their controlling owners and

managers through transfer of resources, profits, cash and even opportunities between firms

in which their cash flow rights vary (Bertrand et al, 2000), Such abusive related party

transactions take the form of interest free loans and advances, inter-corporate deposits and

purchase and sale of goods and services at rates disadvantageous to the company where

the group cash flow interests are lower than the other parties’ where they are higher. As an

example, an OECD study (2012, p. 91) of related party transactions of the top-50 companies

indicated that some transactions accounted for more than 20% of the net worth of these

companies. Clearly, the scale of such transactions is indeed a significant indicator of how

individual company operations are routed through related group entities with potential rent

extraction for the controlling shareholders.

Board Interlocks

Interlocking directorates occur where a director on one company also sits on the board of

another company, thus bringing both companies together in a network of relationships.

Interlocks could also occur indirectly: when a director a company (A) sits on the boards of

two other companies (B & C), the latter two companies would be deemed to be interlocked

indirectly, although none of the other directors of B and C may be sitting on each other’s

boards. Groups often offer more than adequate scope for interlocks between and among

their own companies besides others. Concentrated ownership structures with their

proclivity to disproportionately large access to control rights in corporations encourage

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board interlocks not only within groups but also among other similarly owned large

enterprises. Thus, Balasubramanian, et all (2011) found that 6% of the total director

population on the boards of NSE listed companies controlled 66% of the total NSE market

capitalization in 2010. Barring a handful of professional executives, most of the directors in

this 6% were from or affiliated to corporations with concentrated ownership structures.

Interlocks have both good and bad aspects, justifying their comparison with cholesterol! On

the positive side they help transfer of good practices and offer win-win advice to both the

companies and on the negative side, they can stifle competition and share business

intelligence otherwise not easily available, respectively. In case of group interlocks, it is

conceivable that the companies with better cash flow rights to the controlling promoters

may benefit at the cost of others where their rights are poorer.

II Ownership of Indian Corporations

A time series analysis of ownership structures in corporate India in the first decade of this

millennium is presented in this section, first describing the sample for this study and the

methodologies used for sourcing, validation and analysis of the data as well the subsets of

sample companies for a fuller understanding of the trends and their underlying rationale.

The primary data was sourced from the National Stock Exchange and related to the years

ended 31 December 2001 to 2011. Three sample sets were used: (i) the top fifty companies

comprising the Nifty Index, (ii) the next fifty companies comprising the “Junior Nifty” (iii) the

total hundred companies in both these subsets comprising the NSE-CNX 100. These are

described further detailed below; the main purpose of this classification was to identify the

trends in the second fifty generally smaller companies in the CNX 100 index without they

being swamped by the first fifty larger company set.

a) NSE in the Indian Context

The National Stock Exchange formed in 1992, has in a short time become India’s largest

stock exchange, bigger than its much older counterpart, the Bombay Stock Exchange. Its

pioneering use of technology offered the markets a transparent trading platform for all

listed securities and transformed stock trading from a location-dependent operation to a

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nationwide footprint where parties can buy and sell securities from anywhere in the country

where technology access is available. In 2011, the exchange had 1657 companies listed with

an aggregate market capitalization of Rs. 52, 32,273 crores. The NSE operates two

prominent indices, among others, namely the NIFTY - 50 and the CNX-100. The following is a

brief introduction to the two indices.

b) The S&P CNX-NIFTY-50

This bellwether index was first constituted in April 1996. It is owned and managed by Indian

Index Services and Products Ltd and has a license agreement with Standard and Poor (S&P).

The companies in the NIFTY-50 have nearly two thirds market capitalization (on a free-float

basis5) of all the stocks listed in the NSE. At present it has representation from 11 different

sectors and various types of management control.

c) The NIFTY JUNIOR

This index was formed in early 2007. It represents the second fifty most liquid stocks after

those in the CNX Nifty.. The companies in the NIFTY JUNIOR represent 16 sectors.

d) The CNX-100

This index was formed in early 2003. It is a combination of the NIFTY-50 and the NIFTY

JUNIOR. The companies in the CNX-100 account for 16 sectors and have a combined market

capitalization close to 80% of the market capitalization (adopting the free float

methodology) of all NSE listed companies. The index is owned and managed by the Indian

Index Services and Products Ltd.

e) Time Frame

A decade-plus time frame (eminently reasonable for a time series study) was chosen

principally for the following three reasons:

• Economic liberalization measures initiated in 1991 (and even earlier on a relatively

lower key) were further strengthened in the years that followed and began to

stabilize around the turn of the century. International interest in India began to

5 Free float comprises the proportion of companies’ equity that is available for trading; by definition it excludes promoters’ holdings which are deemed illiquid and not available for public trading. The current regulatory requirement stipulates a minimum of 25% of the company’s equity to be available for trading to maintain its listed status but there may be several companies which are yet to fully comply

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grow, especially with global majors like GE identifying India and China as the future

engines of economic growth. Increased broad-based interest in corporate stocks that

was unleashed (following the implementation of the Foreign Exchange Regulation

Act) in the nineteen-seventies and eighties by the market entry of innumerable

multinationals already operating in India on a limited scale was further cemented

and catapulted by the “equity cult” that was spreading across the country, a major

share of credit for which is due to the pioneering and innovative entrepreneur,

Dhirubhai Ambani of Reliance Industries.6 Foreign direct investment in Indian

venture steadily increased as a consequence of ongoing policy relaxations on higher

foreign shareholding limits in many sectors. Also, as part of the government’s

disinvestment programmes, many public sector corporations including banks were

listed on stock exchanges boosting both available securities and their active trading,

with Indian and Foreign Institutional Investors contributing handsomely. The country

had also shed its antagonistic posture against private sector businesses and was

willing to openly live with concentration of economic power in the hands of business

houses, a concept that was anathema in the decades following political

independence. Globalisation initiatives led to recognition of the needs for corporate

consolidation through mergers and acquisitions inevitably bringing in their wake

issues of contestability of corporate control. The first decade of the new millennium

thus offered a rich timeframe to explore ownership trends in companies accounting

for a sizable slice of market capitalization.

• Reporting and disclosure norms for listed corporations had been substantially

improved alongside significant prescriptive improvements in the governance of listed

corporations, effected through their listing agreements with stock exchanges. These

substantially enhanced the availability and richness of detail of authentic

information from company filings with respective stock exchanges. For example,

without the ownership data by categories available now in company filings, a study

of this nature and on this scale would have been extremely difficult and time

consuming if not virtually impossible to pursue.

6 Between 1980 and 1985, the number of Indians owning shares increased from less than a million to some four million. The number of shareholders in Reliance Industries alone rose to more than a million by 1985 (McDonald 1998, p.56)

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• Corporate ownership, and hence control, in India is predominantly concentrated in

the hands of a few, sponsors or promoters, unlike say in the US and UK. Also, there

has been a very visible movement in many countries away from retail or individual

shareholders towards institutional investors like pension funds and mutual funds.

The insurance and mutual funds sector had been a state monopoly for the Life

Insurance Corporation and Unit Trust of India for most of the post-independence

decades until private sector entities were allowed entry at the turn of the century;

this together with the advent of foreign institutional investors in the Indian capital

market following gradual economic liberalisation beginning 1991 enabled multiple

institutions to invest and participate in the Indian corporate sector. Having reached a

measure of stability over the years, their presence and operation in the chosen time

frame would help identify if and to what extent such a trend towards institutional

investors away from retail investors was discernible in the publicly traded Indian

corporate sector.

f) Data review and validation

First the list of companies forming the NIFTY and CNX-100 over a period of eleven years

(2001-2011) was obtained from the NSE archives. The CNX-100 did not exist prior to 2004

and as a result the NIFTY-50 and the NIFTY JUNIOR were combined together to arrive at a

list of 100 companies, in line with the methodology followed by the NSE, for the years 2001-

2004. Ownership data was obtained primarily from NSE based on company filings as of

December 31 each year. There were some blanks especially in some of the earlier years of

the study time frame; and also there were instances where the year-on-year changes were

striking. In such cases, information from multiple other sources - Prowess, Capital Line and

company web sites were consulted to validate the data sets. Although ownership data were

available in both absolute numbers and percentages, the later figures were used for

processing and analysis since this study’s objective was to ascertain proportions of equity

holding by different categories of shareholders and to determine trends in ownership and

explore to the extent possible their underlying circumstances.

Size-wise, the sample covers 189 companies which have been part of the Nifty and 100

indices at some time or the other during the study time frame. Membership of the index list

is not permanent and hence the composition changes from time to time; this explains the

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additional 89 companies compared to the normative size of 100 on the index at any time.

Only 20 and 29 companies respectively have been continuously on the NIFTY and CNX-100

during the entire time frame of the study.

Classification of Companies For purposes of our analysis, sample companies have been classified under four categories

based on the type of ownership and control. Exhibit-2 sets out our grouping of the sample

companies, further described below.

Domestic Private Sector Companies

These are companies that are substantially (but not necessarily majority) owned and

controlled by India based groups, individuals, or families. These holdings are classified as

“promoter” owned according to definitions prescribed by SEBI and adopted in company

filings with stock exchanges and include holdings by associates disclosed as acting in concert

with the promoters.

Foreign Private Sector Companies This category comprises of firms that are controlled by foreign based groups or holding

companies including those controlled by foreign based Indian families and individuals, and

acting in concert. Subsidiaries and affiliates controlled by multinational corporations form

part of this group.

Government Owned Companies This category comprises of firms that have state or central governments as the majority

shareholder. Also included are firms where majority shareholding rests with a government

controlled institutional entity such as the Reserve Bank of India (in case of State Bank of

India). The classification is based on respective company filings and descriptions.

Management Controlled Companies (Dispersed shareholdings) These companies comprise of entities with no identifiable controlling promoters as

described in their filings. Shareholders in these companies are institutional investors and

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retail investors with no role to play in operational management and control of the

companies.7

Exhibit 2: Types of Companies

Classification of Shareholders Data was also analysed under four major categories of shareholders in the sample

companies namely (i) Promoters, (ii) Institutional Investors, (iii) Non- Institutional Investors,

and (D) Government. SEBI guidelines define Promoters as individuals or companies owning

more than 20% in the equity capital of the company. For the present study promoters can

be Indian, Foreign or the Government. In case the promoter is the Central or State

government, then this shareholding has been classified as Government. So while promoter

shareholding can appear across Domestic Private Companies, Foreign Private Companies

and (to an insignificant extent, Management Controlled Companies), Government

shareholding is relevant only in Government companies. Institutional Investors both

domestic and foreign, Mutual Funds, Venture Capital Funds and so on can figure across all

the four categories of companies. Similarly Non-Institutional shareholding consisting of

Corporate Bodies, Individual Shareholders, NRIs and Foreign Nationals can appear across all

company categories.

7In some of these companies (for example, Larsen and Toubro), there were very small proportions of holdings classified as promoters’ probably representing the residual remnants which originally belonged to the promoters; they were however not material enough to control the company

Index Companies

Domestic Private Companies

Foreign Private Companies

Government Owned

Companies

Management Controlled Companies

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Exhibit 3: Classification of Share Ownership

Ownership Type

Domestic

Private

Company

Foreign Private

Company

Government

Owned Company

Management

Controlled

Company

Promoter ∗ ∗ ∗

Government ∗

Institutional ∗ ∗ ∗ ∗

Non-

Institutional ∗ ∗ ∗ ∗

Statistical analyses that follow have been structured as follows:

• The first slicing of the data was on the basis of the two sub-sample sets, depending

upon the profile of the companies: the first category (Set A) comprised companies in

the respective indices at 31 December each year; and the second category (Set B)

comprised companies that were in the respective indices as of 31 December 2011

tracked over the time period 2001-2011 (since some of these companies were not

listed in the early years, this the number of companies add up to 50 for the NIFTY

and the JUNIOR NIFTY and 100 for CNX-100 only in the later years). The first category

was to gauge the ownership status in respect of each year’s index population; the

findings in this category would be influenced not only by changes in continuing

companies but also the ownership patterns of incoming and outgoing companies.

The second category was to ascertain ownership movements in balanced sets of

companies to discern historical trends over time in changes over the study period

without being affected by changes attributable to incoming and outgoing companies.

• Within these two broad sets, the second slicing was by the indices they were part of:

Nifty, Junior Nifty and 100. This was to ascertain the changing patterns among the

three index groups.

18

• The third slicing was to derive for each of these six data sets (first slicing of two

multiplied by the second slicing of three), summaries of ownership movements in

fourteen categories comprising mean and median statistics in respect of the total

sample in the category, the four company classifications (domestic private, foreign

private, government, and management control) and two investor categories

(institutional and non-institutional retail). There are thus a total of (2*3*14) 84

exhibits (of graphics and tables) that are presented in the Annexure. A schematic of

this analytical structure is displayed in Exhibit-4.

19

Exhibit 4: Schematic of Analytics Structure

Set B Index Companies as of

December 2011 and Preceding 10 years whether or not in Index

NIFTY-BN Series

JUNIOR NIFTY-BJ Series

CNX 100-BC Series

Set A Index Companies as of

December 31st- 2001 to 2011 N= 50/50/100

Graphs-14 Types for each Index within each Set

All Companies Mean Ownership Trends

All Companies Median Ownership Trends

Domestic Pvt. Companies Mean Ownership Trends

Domestic Pvt. Companies Median Ownership Trends

Foreign Pvt. Companies Mean Ownership Trends

Foreign Pvt. Companies Median Ownership Trends

Government Owned Companies Mean Ownership Trends

Government Owned Companies Median Ownership Trends

Management Controlled Companies Mean Ownership Trends

Management Controlled Companies Median Ownership Trends

Institutional Ownership Mean Ownership Trends

Institutional Ownership Median Ownership Trends

Non-Institutional Ownership Mean Ownership Trends

Non-Institutional Ownership Median Ownership Trends

NIFTY-AN Series

JUNIOR NIFTY-AJ Series

CNX 100-AC Series

20

III

Analysis and Observations

While the exhibits in the annexure set out detailed charts and statistical information, this

section outlines the key findings and observations flowing from this study. Although, for

reference purposes, the annexure exhibits provide both mean and median information, this

discussion is based only on median statistics, given the general problems of outliers vitiating

arithmetical averages in such analyses. We first deal with the Set A companies that were

part of the Nifty and CNX 100 each year (hence disparate panels of companies) and then Set

B companies comprising those in the Nifty and CNX 100 as of 2011 and their respective data

for the preceding ten years (hence a balanced panel of companies).

Set A: Index Companies at Each Year-end:

• The composition profile of the Index companies has recorded a major structural shift

during the study time frame. In the Nifty, government companies moved up from 7

in 2001 to 10 in 2001 with a decline in foreign private companies from 11 in 2001 to

8 in 2011. In the larger CNX 100 index, this pattern was even more pronounced with

government companies going up from 10 to 22 and foreign companies declining

from 27 to 14 between 2001 and 2011. This escalating predominance of government

companies has huge implications for the protection of absentee shareholders’

interests, given the government’s disclosed powers to inflict costs on their controlled

companies in public interest.8

8The Coal India Ltd case (sub judice) is a recent example where absentee shareholders have taken umbrage in respect of government directives prejudicial to their interests

21

Exhibit 5A: Count of Companies in the CNX-Set A

Exhibit 5B: Count of Companies in the NIFTY-Set A

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Domestic Private Sector 52 52 50 47 46 46 51 52 51 51 51

Foreign Private Sector 27 23 18 14 15 15 14 13 14 13 14

Government Owned 10 15 21 28 28 27 23 24 23 24 22

Management Controlled 11 10 11 11 11 12 12 11 12 12 13

0

10

20

30

40

50

60

Coun

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nies

CNX-100-Set A-Count, 2001-2011

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011





0

5

10

15

20

25

30

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NIFTY-Set A-Count, 2001-2011

22

Exhibit 5C: Count of Companies in the JUNIOR NIFTY-Set A

• There is empirical confirmation of the predominance of concentrated ownership and

control in corporate India. Not only that but also the extent of such concentration

over the years was increasing. Thus, although out of the fifty Nifty companies the

number of dominant ownership entities (domestic, foreign and government) had

gone down to forty two in 2011 from forty four in 2001, the median holdings of

controlling shareholders had gone up to 56.24 % in 2011 from 42.94 % in 2001. In

the larger CNX 100 sample, the number of such companies remained unchanged at

86, median promoter holdings has gone up from 48.83 % in 2001 to 54.21 % in

2011.Entry in to the Index cluster of new companies some with higher promoter

holdings is a possible contributory to the escalation in promoter ownership. For

example, entry in to the Nifty of three additional government companies with

significant promoter ownership would reflect in the overall Nifty median promoter

ownership numbers. Besides, some reclassifications of holdings from the

institutional to the government category in the earlier years would also have the

same effect.9

• Domestic private companies as a class did escalate their promoter holdings

substantially over the period: median holdings in Nifty going up from 28.50% in 2001

9 For instance, holdings in Kochi Refineries and State Bank of India held by other government owned entities like Bharat Petroleum and Reserve Bank of India respectively were rightly reclassified as government holdings in later years.

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011





0

5

10

15

20

25

30

Coun

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JUNIOR NIFTY-Set A-Count, 2001-2011

23

to 46.80% in 2011. (AN-4); in Junior Nifty from 36.67% in 2001 to 45.98% in 2011 (AJ-

4) and in CNX 100 from 32.08% to 46.75% (AC-4). One implication could be that

given the more relaxed political and regulatory attitude towards control

contestability, these companies had to gradually bolster their holdings as a defence

against possible unsolicited takeover attempts.

• Foreign controlled companies in the Nifty, although three less in number in 2011

compared to 2001, actually recorded an increase in promoter ownership from 51%

in 2001 to 53.36% in 2011 (AN-6) . On the other hand, such companies in the Junior

Nifty showed a decrease from 52.82% in 2001 to 51.00% in 2011 (AJ-6), thus

neutralsing the effect on the corresponding numbers in CNX 100 with median

numbers remaining virtually unchanged: 51.01% in 2001 and 51.76% in 2011 (AC-6).

• Non-Institutional retail shareholdings, in line with experience elsewhere in the

developed world have recorded a steep decline during the study period: in the Nifty

panel, the median holding fell to 16.15% in 2011 from 28.82 % in 2001 (AN-14). The

Junior Nifty companies recorded an even greater decline; from 31.21% in 2001 to

15.88% in 2011 (AJ-14) .The CNX 100 group reflected this trend, the median numbers

falling from 30.29% in 2001 to 15.96% in 2011 (AC-14).

• Not all of this migration, however, was to institutional shareholdings which remained

virtually unchanged at 30.15% in 2001 and 30.31 in 2011 (AN-2). Within the two

groups though, there were significant differences between the Nifty and the Junior

Nifty companies: median numbers in Nifty were 30.15% in 2001 and 30.31 in

2011;Junior Nifty companies, on the other hand, recorded a different trend with

median numbers increasing from 16.57 in 2001 to 27.58 in 2011 (AJ-2). This would

seem natural since the promoters in Junior Nifty companies overall did not feel the

necessity to increase their holdings, already being at comfortable levels.

• The migration of non-institutional shareholdings in case of domestic private

companies reveals a similar trend. In the Nifty group, median institutional

shareholdings recorded little change: 33.04% in 2001 and 30.77% in 2011 (AN-4),

confirming absorption of the migration from non-institutional shareholding, much of

it through buybacks with promoters not participating and, in some cases, through

24

open offers following acquisitions.10 But in case of Junior Nifty companies, median

institutional holdings shot up from 15.25% in 2001 to 28.07% in 2011 (AJ-4).

• The churn in the Junior Nifty companies during this period also likely influenced

these statistics; for example, included in this churn is a substantial reduction in

foreign companies through de-listing and preferential allotments and a

corresponding increase of government companies replacing them could have

affected both the promoter and non-institutional retail shareholdings.11

Frequency Distribution of Promoter/ Government Holding in All Index Companies

Exhibit 6A: Frequency Distribution of Promoter/Government Companies in CNX-100

10 For example Aditya Birla Nuvo offered share buybacks to increase holdings from 39% (2007) to 50% (2011) 11 The Government companies in the sample grew from 10 in 2001 to 22 in 2011. The mean promoter holdings went from 60% to 67% within this period,

50 50 50

2001 2006 2011

N 11 3 18 14 9 45 8 2 9 12 9 60 7 2 7 12 12 60

0

10

20

30

40

50

60

70

N

CNX-100

25

Exhibit 6B: Frequency Distribution of Promoter/Government Companies in NIFTY

Exhibit 6C: Frequency Distribution of Promoter/Government Companies in NIFTY JUNIOR

• The simple frequency distribution of promoter holdings in the index companies

shows that companies with promoter holdings > 50% have increased in all three

indices between 2001 and 2011. Within the CNX-100, 45 companies had promoter

holdings in excess of 50%. This increased to 60 companies in 2006 and 2011. Within

the NIFTY-50 companies this number went up from 19 in 2001, to 28 in 2006 and 30

in 2011. With reference to the JUNIOR NIFTY companies, the number of companies

with more than 50% promoter holdings was 26 in 2001, went up to 32 in 2006 and

was 30 companies in 2011. The absolute increase between 2001 and 2011 in the

50 50 50

2001 2006 2011

N 8 0 12 6 5 19 5 1 7 7 2 28 5 1 4 6 4 30

0

5

10

15

20

25

30

35

NNIFTY

50 50 50

2001 2006 2011

N 3 3 6 8 4 26 3 1 2 5 7 32 2 1 3 6 8 30

0

5

10

15

20

25

30

35

N

JUNIOR NIFTY

26

number of companies with more than 50% promoter holdings provides strong

support to the fact that promoter holdings have increased over the 10 year period.

Set B: Index Companies in 2011 over Ten Preceding Years

• As noted earlier, this set comprises a uniform panel of companies (based on index

companies in 2011) comprising ten earlier years’ data. This profile is helpful in

tracking the structural changes in individual companies over time and ascertaining

trends in Nifty, Junior Nifty and CNX 100. Key findings, again based on median data,

are enumerated below:

• In terms of composition, this set had in the CNX 100, 51 companies in the domestic

private group, 14 in the foreign private group, 22 in the government group and 13 in

the management controlled group in the base year 2011. The profile should have

remained unchanged in all the years since the same company history is what was

being tracked. In practice though, there were two exceptions where a domestic

private company through acquisitions were reclassified as foreign private

companies.12 Also to be noted is that all the companies in 2011 had not been listed

in 2001. As a result N values increased over the years finally reaching 100 in 2010.

12These were Ambuja Cements (2006) and Ranbaxy Laboratories (2008), following acquisition respectively by Holcim and Daiichi Sankyo

27

Exhibit 7A: Count of Companies in the CNX-Set B

Exhibit 7B: Count of Companies in the NIFTY-Set B

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011





0

10

20

30

40

50

60

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2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011





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25

30

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NIFTY-Set B-Count, 2001-2011

28

Exhibit 7C: Count of Companies in the JUNIOR NIFTY-Set B

• Promoter ownership registered steep increases in the Nifty set from 25.99% in 2001

to 38.19% in 2011 (BN-2), and in the CNX 100, from 30.53% in 2001 to 41.69% in

2011 (BC-2). In the Junior Nifty companies though there was little change: from

42.41% in 2001 down to 42.06% in 2011 (BJ-2). As noted in the Set A comments,

these Junior Nifty companies starting with a fairly comfortable promoter holding,

perhaps had little pressure to increase their holding as a takeover defence.

• Within the Nifty group, promoters of domestic private companies hiked their median

holdings steeply from 26.41 in 2001 to 46.80 in 2011 (BN-4).13The Junior Nifty group

of domestic private companies on the other hand recorded only a modest increase

with their median promoter holdings going up from 42.51% in 2001 to 45.98% in

2011 (BJ-4) tempering corresponding numbers in the entire CNX 100 group to an

increase from 32.55% in 2001 to 46.75% in 2011 (BC-4).

• Non-Institutional holdings in this set saw major decline with median holdings in the

CNX 100 falling from 28.71% in 2001 to 15.95% in 2011 (BC-2); within this, the Nifty

13For example, companies such as Jindal Steel and Power and Hero Motor Corporation saw an increase in promoter holdings by as much as 25% between the years 2001 and 2011.

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011





0

5

10

15

20

25

30

Coun

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JUNIOR NIFTY-Set B-Count, 2001-2011

29

companies14 virtually halved their median non-institutional holdings from 32.25% in

2001 to 16.14% in 2011 (BN-2) while in the Junior Nifty group, the fall was less

severe from 25.58% in 2001 to 15.88% in 2011 (BJ-2). Among domestic private

companies’ decline was more severe in the Nifty than in the Junior Nifty: median

non-institutional shareholdings in the Nifty fell from 33.54 in 2001 to 19.33 in 2011

(BN-4) while in the Junior Nifty they fell from 31.09 to 20.07% (BJ-4). As in the case

of Set A companies, here also much of this migration was to bolster promoters’

shareholdings in the Nifty group while a substantial part went to institutional

investors in the Junior Nifty group.

• Foreign companies as a group in this Set saw negligible movement in promoter

holdings during the study period. Non-institutional shareholdings however recorded

a steep decline in Nifty where they fell from 30.36% in 2001 to 15.68% in 2011 (BN-

6), while the fall in Junior Nifty was much more modest, from 17.31% in 2001 to

16.24% in 2011 (BJ-6), leading to a combined CNX 100 numbers of 25.58% in 2001

and 16.09% in 2011 (BC-6). Much of these released holdings were picked up by

institutional shareholders with some part being absorbed by the promoters mostly

through open offer purchases following acquisitions.15

• Government companies in this Set witnessed some significant migration from non-

institutional to institutional shareholders largely in the Junior Nifty group: from

18.33% in 2001 to 10.71% in 2011 (BJ-8) in the non-institutional category and from

12.39% in 2001 to 25.20% in 2011 in the institutional category (BJ-8).16

• The 13 management controlled companies in this set witnessed a steep escalation in

institutional holdings from 35.22% in 2001 to 51.09 % in 2011 (BC-10) with

corresponding decline in non-institutional shareholdings. While eight such

companies in Nifty witnessed a steep increase in this category from 40.88% in 2001

14For example, Non-Institutional holdings in ACC fell by 39% and slightly more than 50% in the case of Jindal Steel and Power between the two years 2001 and 2011 15For example, Institutional Holdings in the Kotak Mahindra Bank increased by 30% while in HCL Technologies it increased by nearly 18% 16For example Andhra Bank and the Bank of India saw more than 20% increase in Institutional Holdings while Non-Institutional holdings went down by 13% and 11% respectively

30

to 53.25% in 2011 (BN-10), the escalation in the five such companies in Junior Nifty

was staggering, from 7.95% in 2001 to 42.42% in 2011 (BJ-10).17

Frequency Distribution of Promoter/ Government Holding in All Index Companies

Exhibit 8A: Frequency Distribution of Promoter/Government Companies in CNX-100

Exhibit 8B: Frequency Distribution of Promoter/Government Companies in NIFTY

17Federal Bank, Indus Ind Bank and Mphasis saw drops in excess of 40% in the Non-Institutional shareholding

50 50 50

2001 2006 2011

N 1 0 8 7 7 33 0 0 7 15 5 50 0 0 6 10 12 59

0

10

20

30

40

50

60

70

N

CNX-100

50 50 50

2001 2006 2011

N 0 0 7 4 2 13 0 0 5 7 1 24 0 0 3 5 4 30

0

5

10

15

20

25

30

35

N

NIFTY

31

Exhibit 8C: Frequency Distribution of Promoter/Government Companies in NIFTY JUNIOR

• As in the case of Set A, the number of companies having more than 50% promoter

shareholding has increased in the period 2001-2011. While the increase is not as

dramatic as Set A, since not all promoter companies listed in 2011 were listed in

2001, these graphs indicate once again that not only have promoters been increasing

their stakes but also that promoter led companies gave begun to dominate the

indices.

In Summary

Concentrated ownership and control is the predominant shareholding pattern in India. Over

the eleven-year study period from 2001 to 2011 December, controlling shareholders have

further entrenched themselves by substantially increasing their holdings, especially in the

Nifty domestic companies while strengthening their already large holdings in the Junior

Nifty domestic companies.

In line with the trends in other developed markets, non-institutional retail shareholdings are

on the wane in the country. During the study period, they declined substantially almost

halving from their 2011 levels. In the Nifty companies, much of these holdings were picked

up by the promoters in the domestic private sector companies to boost their entrenchment

and as a defense against hostile takeovers. In the Junior Nifty companies where promoters

50 50 50

2001 2006 2011

N 1 0 1 3 5 20 0 0 2 8 4 26 0 0 3 5 8 29

0

5

10

15

20

25

30

35

NJUNIOR NIFTY

32

already had entrenched themselves, institutional shareholders absorbed most of the

holdings released by non-institutional shareholders.

Foreign companies in this study have strengthened their entrenchment with median

holdings running over 50% right through. Government policy changes opening up several

business sectors for majority foreign direct investment may be a contributing factor for the

decline in the number of listed companies.

Government companies in this sample witnessed a decline in non-institutional share

holdings over the study period, with institutional holdings showing corresponding increases.

In case of management controlled companies in this sample, the increase in institutional

holdings and the corresponding decrease in non-institutional holdings has not been as sharp

as the changes in the other three categories.

Implications for Governance These trends in corporate ownership structures have several important implications for the

corporations and their governance as well as for investors not in operational control. Some

of the more important consequences are enumerated below:

On the positive side, the foremost benefit is that such entrenched ownership and control

will offer strategic stability and longer term sustainability, especially in case of family

controlled entities; they also offer prospects of more efficient and cost-effective

management, the fruits of which would largely flow down to the bottom line. There would

be greater and closer managerial surveillance to preempt leakages at operational levels.

Their entrepreneurial drive to grasp business opportunities as they arise and convert them

to profits is rarely as effective in non-family managerial structures that usually tend to get

bogged down with ritualistic bureaucracy.

On the other hand, such entrenchment and control offers immense potential to the

owners/controllers for tunneling and personal enrichment at the expense of absentee

shareholders. Expropriation of profits and wealth that rightly belong to absentee

shareholders (as much as to those shareholders in operational control) in proportion to

their shareholdings is a distinct possibility, usually manifested through abusive related party

33

transactions, overly exorbitant executive compensation to the promoters and their kin,

usurpation of corporate opportunities for personal or family advantage, and so on.

As a consequence, corporations with such ownership structures require competent,

independent and trustworthy boards to protect the interests of absentee shareholders. The

task, however, of installing and sustaining such effective boards for rigorous oversight and

surveillance in corporations with such concentrated ownership and control is perhaps the

most challenging. Populating their boards with independent directors and providing an open

and transparent environment that would encourage due discharge of their duties are most

likely to be influenced by the presence of such strong owners and controllers; director

independence could be further compromised by excessive remuneration and offer of other

perquisites and lucrative opportunities to the non-executive directors. This is a major

challenge posed by such ownership structures.

Implications for management controlled companies are no less daunting, albeit for different

reasons. Just because the managers are not substantial owners, the risk of their indulging in

similar tunneling initiatives is no less important. Such companies’ boards and directors

would likely need to be even more vigilant since such structures come with the negatives of

concentrated ownership and control structures, often without the positives that family

controlled entities bring to the table.

The growing institutional investor holdings, again, can be a mixed blessing. It can help

improve investee companies’ governance through meaningful engagement and also use its

voting clout to preempt any abusive initiatives perceived as not being in the interests of

absentee shareholders. On the other hand, unscrupulous controllers may find it convenient

to canvas support from the fewer institutional investors, directly or through their masters

Good stewardship practices both in-house and opposite investee companies may minimize

the risks of the latter.

As has been noted before, some long-overdue regulatory measures are on the anvil and

more of course would be required. Some key measures, among them, notably, the restraint

on promoters voting on resolutions where they stand to benefit, have already been initiated

through legislation and regulation; their impact will of course depend upon speedy and

effective compliance monitoring.

34

On the flip side, regulation is only a partial deterrent and the good governance in true

stewardship spirit can only come about with a wholehearted buy-in of best practices in the

larger interests of the company and all its shareholders, whether controllers or absentees.

___________________________________

35

Exhibit 9: Summary Statistics- Index Composition and Market Capitalisation Rs. Crores

S. No Item NIFTY JUNIOR NIFTY CNX-100

1 Total number of Companies in the Indices for one or more years

during2001-2011

86 103 189

2 Companies Recurring Every Year in

the respective Indices during 2001-

2011

20 4 29*

3 Market Capitalisation-2001 285,000 28,500 313,500

4 Total NSE Market

Capitalisation(785 listed

companies)

552,900

5 As a % of NSE Market Capitalisation-2001

51.55% 5.15% 56.70%

6 Free Float**Market Capitalisation-

2011

1,405,066

247,531

1,652,597

7 Total NSE Market Capitalisation-

2011 5,232,273

8 As a % of NSE Market

Capitalisation (1657 listed

companies)

26.85% 4.73% 31.58%

*This is larger than the sum of Nifty and Junior Nifty because it would include companies which were in one or the other of those Indices for part of the study period but together in all the years in the CNX 100; **Free float methodology adopted since 2009

36

Exhibit 10: Summary Statistics- Ownership Data

Index

NIFTY

JUNIOR NIFTY

CNX-100

S. No Statistic/Year 2001 2011 2001 2011 2001 2011

Set A-Promoter Companies Only

1 Mean Promoter Ownership 37.61 49.57 47.58 47.26 42.85 48.40

2 Median Promoter Ownership 35.38 49.87 50.94 47.65 42.20 48.51

3 Mean Institutional Ownership 29.88 27.46 16.86 29.35 23.37 28.44

4 Median Institutional Ownership 29.07 27.81 16.04 26.95 22.95 27.09

5 Mean Government Ownership 43.06 70.13 41.13 63.94 42.48 66.75

6 Median Government Ownership 56.25 68.57 57.17 65.50 56.71 65.87

7 Mean Non-Institutional Ownership 29.26 15.87 34.38 16.30 31.82 16.09

8 Median Non-Institutional Ownership 26.21 14.45 30.98 15.81 28.46 14.89

Set A- All Companies

9 Set A-Mean Promoter Ownership 29.49 39.66 41.29 38.98 35.51 36.69

10 Set A-Median Promoter Ownership 28.59 46.24 45.12 42.06 35.77 41.69

11 Set A-Mean Institutional Ownership 31.83 32.47 18.38 30.81 25.17 31.64

12 Set A-Median Institutional Ownership 30.15 30.31 16.57 27.58 24.75 29.50

13 Set A-Mean Government Ownership 43.06 70.13 41.13 63.94 42.48 66.75

14 Set A-Median Government Ownership 56.25 68.57 57.17 65.50 56.71 65.87

15 Set A-Mean Non-Institutional Ownership 31.15 18.38 34.66 17.94 32.89 18.16

16 Set A-Median Non-Institutional

28.82 16.15 31.21 15.88 30.29 15.96

Set B-Promoter Companies Only

17 Mean Promoter Ownership 37.55 49.57 44.99 47.26 41.27 48.40

18 Median Promoter Ownership 32.08 49.86 48.83 47.65 40.62 48.51

19 Mean Institutional Ownership 27.48 27.46 20.44 29.35 23.84 28.44

20 Median Institutional Ownership 28.95 27.81 21.89 26.96 25.61 27.10

21 Mean Government Ownership 61.87 70.13 59.30 63.94 60.40 66.75

22 Median Government Ownership 67.53 68.57 66.44 65.49 67.01 65.86

23 Mean Non-Institutional Ownership 28.44 15.86 27.51 16.30 27.96 16.09

24 Median Non-Institutional Ownership 31.50 14.45 24.75 15.81 26.04 14.89

Set B-All Companies

25 Set B-Mean Promoter Ownership 27.94 34.65 37.32 38.98 32.22 36.69

26 Set B-Median Promoter Ownership 25.99 38.19 42.41 42.06 30.53 41.69

27 Set B-Mean Institutional Ownership 29.61 32.47 20.51 30.81 25.12 31.64

28 Set B-Median Institutional Ownership 31.01 30.31 18.98 27.58 25.69 29.49

29 Set B-Mean Government Ownership 61.87 70.13 59.30 63.94 60.40 66.75

30 Set B-Median Government Ownership 67.53 68.57 66.44 65.49 67.01 65.86

31 Set B-Mean Non-Institutional Ownership 30.15 18.38 29.90 17.94 30.03 18.16

32 Set B-Median Non-Institutional

32.25 16.14 25.58 15.88 28.71 15.95

37

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Table of Contents for Annexures

S.No Exhibit Name Page No

1 Exhibit AN-1 NIFTY -Set A-Mean Ownership Trends, 2001-2011 42

2 Exhibit AN-2 NIFTY-Set A-Median Ownership Trends, 2001-2011 42

3 Exhibit AN-3 NIFTY-Set A-Domestic Pvt Sector Companies-Mean Ownership Trends, 2001-2011 43

4 Exhibit AN-4 NIFTY-Set A-Domestic Pvt Sector Companies-Median Ownership Trends, 2001-2011 43

5 Exhibit AN-5 NIFTY-Set A-Foreign Pvt Sector Companies-Mean Ownership Trends, 2001-2011 44

6 Exhibit AN-6 NIFTY-Set A-Foreign Pvt Sector Companies-Median Ownership Trends, 2001-2011 44

7 Exhibit AN-7 NIFTY-Set A-Government Owned Companies-Mean Ownership Trends, 2001-2011 45

8 Exhibit AN-8 NIFTY-Set A-Government Owned Companies-Median Ownership Trends, 2001-2011 45

9 Exhibit AN-9 NIFTY-Set A-Management Controlled Companies-Mean Ownership Trends, 2001-2011 46

10 Exhibit AN-10 NIFTY-Set A-Management Controlled Companies-Median Ownership Trends, 2001-2011 46

11 Exhibit AN-11 NIFTY-Set A-Mean Institutional Ownership Trends, 2001-2011 47

12 Exhibit AN-12 NIFTY-Set A-Median Institutional Ownership Trends, 2001-2011 47

13 Exhibit AN-13 NIFTY-Set A-Mean Non Institutional Ownership Trends, 2001-2011 48

14 Exhibit AN-14 NIFTY-Set A-Median Non Institutional Ownership Trends, 2001-2011 48

15 Exhibit AS-1 SIFTY-Set A-Mean Ownership Trends, 2001-2011 49

16 Exhibit AS-2 SIFTY-Set A-Median Ownership Trends, 2001-2011 49

17 Exhibit AS-3 SIFTY-Set A-Domestic Pvt Sector Companies-Mean Ownership Trends, 2001-2011 50

18 Exhibit AS-4 SIFTY-Set A-Domestic Pvt Sector Companies-Median Ownership Trends, 2001-2011 50

19 Exhibit AS-5 SIFTY-Set A-Foreign Pvt Sector Companies-Mean Ownership Trends, 2001-2011 51

20 Exhibit AS-6 SIFTY-Set A-Foreign Pvt Sector Companies-Median Ownership Trends, 2001-2011 51

21 Exhibit AS-7 SIFTY-Set A-Government Owned Companies-Mean Ownership Trends, 2001-2011 52

22 Exhibit AS-8 SIFTY-Set A-Government Owned Companies-Median Ownership Trends, 2001-2011 52

23 Exhibit AS-9 SIFTY-Set A-Management Controlled Companies-Mean Ownership Trends, 2001-2011 53

24 Exhibit AS-10 SIFTY-Set A-Management Controlled Companies-Median Ownership Trends, 2001-2011 53

25 Exhibit AS-11 SIFTY-Set A-Mean Institutional Ownership Trends, 2001-2011 54

26 Exhibit AS-12 SIFTY-Set A-Median Institutional Ownership Trends, 2001-2011 54

27 Exhibit AS-13 SIFTY-Set A-Mean Non Institutional Ownership Trends, 2001-2011 55

28 Exhibit AS-14 SIFTY-Set A-Median Non Institutional Ownership Trends, 2001-2011 55

29 Exhibit AC-1 CNX-100-Set A-Mean Ownership Trends, 2001-2011 56

30 Exhibit AC-2 CNX-100-Set A-Median Ownership Trends, 2001-2011 56

31 Exhibit AC-3 CNX-100-Set A-Domestic Pvt Sector Companies-Mean Ownership Trends, 2001-2011 57

32 Exhibit AC-4 CNX-100-Set A-Domestic Pvt Sector Companies-Median Ownership Trends, 2001-2011 57

33 Exhibit AC-5 CNX-100-Set A-Foreign Pvt Sector Companies-Mean Ownership Trends, 2001-2011 58

34 Exhibit AC-6 CNX-100-Set A-Foreign Pvt Sector Companies-Median Ownership Trends, 2001-2011 58

35 Exhibit AC-7 CNX-100-Set A-Government Owned Companies-Mean Ownership Trends, 2001-2011 59

36 Exhibit AC-8 CNX-100-Set A-Government Owned Companies-Median Ownership Trends, 2001-2011 59

37 Exhibit AC-9 CNX-100-Set A-Management Controlled Companies-Mean Ownership Trends, 2001-2011 60

38 Exhibit AC-10 CNX-100-Set A-Management Controlled Companies-Median Ownership Trends, 2001-2011 60

39 Exhibit AC-11 CNX-100-Set A-Mean Institutional Ownership Trends, 2001-2011 61

40 Exhibit AC-12 CNX-100-Set A-Median Institutional Ownership Trends, 2001-2011 61

41 Exhibit AC-13 CNX-100-Set A-Mean Non Institutional Ownership Trends, 2001-2011 62

42 Exhibit AC-14 CNX-100-Set A-Median Non Institutional Ownership Trends, 2001-2011 62

43 Exhibit BN-1 NIFTY-Set B-Mean Ownership Trends, 2001-2011 63

44 Exhibit BN-2 NIFTY-Set B-Median Ownership Trends, 2001-2011 63

45 Exhibit BN-3 NIFTY-Set B-Domestic Pvt Sector Companies-Mean Ownership Trends, 2001-2011 64

46 Exhibit BN-4 NIFTY-Set B-Domestic Pvt Sector Companies-Median Ownership Trends, 2001-2011 64

47 Exhibit BN-5 NIFTY-Set B-Foreign Pvt Sector Companies-Mean Ownership Trends, 2001-2011 65

48 Exhibit BN-6 NIFTY-Set B-Foreign Pvt Sector Companies-Median Ownership Trends, 2001-2011 65

49 Exhibit BN-7 NIFTY-Set B-Government Owned Companies-Mean Ownership Trends, 2001-2011 66

50 Exhibit BN-8 NIFTY-Set B-Government Owned Companies-Median Ownership Trends, 2001-2011 66

51 Exhibit BN-9 NIFTY-Set B-Management Controlled Companies-Mean Ownership Trends, 2001-2011 67

52 Exhibit BN-10 NIFTY-Set B-Management Controlled Companies-Median Ownership Trends, 2001-2011 67

41

53 Exhibit BN-11 NIFTY-Set B-Mean Institutional Ownership Trends, 2001-2011 68

54 Exhibit BN-12 NIFTY-Set B-Median Institutional Ownership Trends, 2001-2011 68

55 Exhibit BN-13 NIFTY-Set B-Mean Non Institutional Ownership Trends, 2001-2011 69

56 Exhibit BN-14 NIFTY-Set B-Median Non Institutional Ownership Trends, 2001-2011 69

57 Exhibit BS-1 SIFTY-Set B-Mean Ownership Trends, 2001-2011 70

58 Exhibit BS-2 SIFTY-Set B-Median Ownership Trends, 2001-2011 70

59 Exhibit BS-3 SIFTY-Set B-Domestic Pvt Sector Companies-Mean Ownership Trends, 2001-2011 71

60 Exhibit BS-4 SIFTY-Set B-Domestic Pvt Sector Companies-Median Ownership Trends, 2001-2011 71

61 Exhibit BS-5 SIFTY-Set B-Foreign Pvt Sector Companies-Mean Ownership Trends, 2001-2011 72

62 Exhibit BS-6 SIFTY-Set B-Foreign Pvt Sector Companies-Median Ownership Trends, 2001-2011 72

63 Exhibit BS-7 SIFTY-Set B-Government Owned Companies-Mean Ownership Trends, 2001-2011 73

64 Exhibit BS-8 SIFTY-Set B-Government Owned Companies-Median Ownership Trends, 2001-2011 73

65 Exhibit BS-9 SIFTY-Set B-Management Controlled Companies-Mean Ownership Trends, 2001-2011 74

66 Exhibit BS-10 SIFTY-Set B-Management Controlled Companies-Median Ownership Trends, 2001-2011 74

67 Exhibit BS-11 SIFTY-Set B-Mean Institutional Ownership Trends, 2001-2011 75

68 Exhibit BS-12 SIFTY-Set B-Median Institutional Ownership Trends, 2001-2011 75

69 Exhibit BS-13 SIFTY-Set B-Mean Non Institutional Ownership Trends, 2001-2011 76

70 Exhibit BS-14 SIFTY-Set B-Median Non Institutional Ownership Trends, 2001-2011 76

71 Exhibit BC-1 CNX-100-Set B-Mean Ownership Trends, 2001-2011 77

72 Exhibit BC-2 CNX-100-Set B-Median Ownership Trends, 2001-2011 77

73 Exhibit BC-3 CNX-100-Set B-Domestic Pvt Sector Companies-Mean Ownership Trends, 2001-2011 78

74 Exhibit BC-4 CNX-100-Set B-Domestic Pvt Sector Companies-Median Ownership Trends, 2001-2011 78

75 Exhibit BC-5 CNX-100-Set B-Foreign Pvt Sector Companies-Mean Ownership Trends, 2001-2011 79

76 Exhibit BC-6 CNX-100-Set B-Foreign Pvt Sector Companies-Median Ownership Trends, 2001-2011 79

77 Exhibit BC-7 CNX-100-Set B-Government Owned Companies-Mean Ownership Trends, 2001-2011 80

78 Exhibit BC-8 CNX-100-Set B-Government Owned Companies-Median Ownership Trends, 2001-2011 80

79 Exhibit BC-9 CNX-100-Set B-Management Controlled Companies-Mean Ownership Trends, 2001-2011 81

80 Exhibit BC-10 CNX-100-Set B-Management Controlled Companies-Median Ownership Trends, 2001-2011 81

81 Exhibit BC-11 CNX-100-Set B-Mean Institutional Ownership Trends,

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